How Parents Can Help Kids Build Credit: Authorized User Guide for 2025

Teaching children about money management is one of the most valuable life lessons parents can provide. But many parents overlook an important aspect of financial education: helping kids build credit. With good credit becoming increasingly essential in today's world, giving children a head start can provide significant advantages when they enter adulthood.

Why Building Credit Early Matters

Having established credit history by age 18 or 21 gives young adults a significant advantage. Good credit helps with:

• Renting first apartments without cosigners

• Getting approved for auto loans with better rates

• Qualifying for student loans without needing guarantors

• Avoiding security deposits on utilities

• Better insurance rates in many states

• Future job opportunities (some employers check credit)

Young adults with no credit history often face a frustrating catch-22: they need credit to build credit, but can't get approved without existing credit. Parents can help break this cycle by starting early.

The Authorized User Strategy: Credit Building 101

The simplest and most popular method parents use to help children build credit is adding them as authorized users on existing credit cards. Here's how it works:

How Authorized User Status Builds Credit

When a child becomes an authorized user on a parent's credit card, the entire account history typically gets reported on the child's credit report. This means:

• The account's payment history becomes part of the child's credit profile

• The account's age helps establish length of credit history

• The card's credit utilization ratio affects the child's credit score

• The child inherits the benefits of the parent's good credit behavior

The Ripple Effect of Authorized User Status

For example, adding a 16-year-old as an authorized user on a parent's 10-year-old credit card with perfect payment history and low utilization can help them enter adulthood with:

• 2+ years of credit history

• Established payment record

• Credit utilization data

• A foundation for good credit scores

Best of all, this happens without the child necessarily using (or even possessing) the physical card.

Setting Up Authorized User Status the Right Way

To maximize the benefits while minimizing risks, follow these steps:

1. Choose the Right Card

Not all cards are created equal for authorized user purposes:

• Select a card with perfect payment history: Late payments will hurt your child's credit.

• Choose a low-utilization card: Ideally one that stays below 10-20% of its limit.

• Pick an older account: The longer the history, the better for credit-building.

• Verify the card reports authorized users: Most major issuers do, but confirm with your bank.

• Consider annual fees: Some premium cards charge extra for authorized users.

2. Decide Whether to Give Physical Card Access

Parents have options:

• No card access: Add the child as an authorized user but don't order or deliver a physical card

• Limited card access: Provide a physical card with clear spending rules and monitoring

• Full access with supervision: Give the card but review statements together monthly

3. Use It As a Teaching Tool

The authorized user strategy works best when paired with education:

• Explain how credit works and why the authorized user status helps

• Show monthly statements and discuss payment timing

• Demonstrate how utilization affects credit scores

• Track their growing credit score together

Beyond Authorized Users: Other Ways Parents Can Help Build Credit

While the authorized user approach is most common, other strategies can complement or replace it:

Secured Credit Cards

For older teens (18+), secured cards provide training wheels for credit:

• Requires a cash deposit that serves as the credit limit

• Reports to credit bureaus like regular credit cards

• Lower risk since spending is limited to the deposit amount

• Builds independent credit in the child's name

Parents can help by:

• Funding the initial security deposit

• Monitoring usage and payments

• Setting up automatic payments to avoid missed due dates

Credit Builder Loans

These unique financial products are specifically designed for credit building:

• Money borrowed is held in a savings account until loan is repaid

• Monthly payments are reported to credit bureaus

• After the loan term ends, the child receives the money back plus interest

• Teaches discipline of regular monthly payments

Co-signing Student or Auto Loans

For college-aged children, responsibly managed loans can build credit:

• Having a parent co-sign enables approval and better rates

• Regular payments build positive credit history

• Diversifies credit mix (important for credit scoring)

Warning: This approach comes with significant risk for parents, as late payments affect both the parent's and child's credit.

When Should Kids Start Building Credit?

There's no universal "right age" to begin credit-building, but here are some guidelines:

Ages 13-15: Financial Literacy Foundation

• Focus on saving habits and basic money management

• Explain credit concepts without necessarily implementing them

• Consider a checking/savings account to build banking familiarity

Ages 16-17: Authorized User Phase

• Add as authorized user on parent's well-managed credit card

• Start monitoring credit reports and scores

• Deepen financial education with budgeting skills

Ages 18-21: Supervised Independence

• Help obtain a secured card or student credit card

• Consider a small credit builder loan

• Maintain authorized user status on parent's card while building independent credit

5 Golden Rules for Parents Teaching Credit Responsibility

Setting proper expectations is crucial for long-term success:

1. Credit Is a Tool, Not Free Money

Emphasize that credit cards represent borrowed money that must be repaid, not additional income.

2. Full Payment Is the Only Acceptable Strategy

Teach that carrying balances is expensive and undermines the benefits of credit-building.

3. Establish Clear Consequences for Misuse

Determine in advance what happens if credit privileges are abused.

4. Regular Credit Monitoring Is Essential

Set up credit monitoring together and review reports at least quarterly.

5. Patience Pays Off

Explain that credit-building is a marathon, not a sprint, with compound benefits over time.

Common Mistakes Parents Make When Helping Kids Build Credit

Avoid these pitfalls when implementing credit-building strategies:

Mistake #1: Adding Children to Troubled Accounts

Adding a child as an authorized user on an account with late payments or high utilization can actually harm their credit.

Mistake #2: Failing to Monitor Activity

Without regular oversight, problems can develop without your knowledge, potentially damaging both your credit and your child's.

Mistake #3: Not Explaining the Why Behind the Strategy

Building credit without understanding its purpose and how it works limits the educational value.

Mistake #4: Taking a "Sink or Swim" Approach

Giving a teenager a credit card without guidance often leads to mistakes that take years to repair.

Mistake #5: Keeping Credit a Family Secret

Not discussing money and credit openly makes the topic seem taboo rather than an important life skill.

Getting Started: Your 30-Day Action Plan

Ready to help your child build credit? Here's a 30-day roadmap:

Days 1-7: Research and Selection

• Pull your own credit reports to identify your best accounts

• Contact card issuers to confirm authorized user reporting policies

• Select the optimal card for adding your child

Days 8-14: Education Foundation

• Have age-appropriate conversations about credit with your child

• Explore educational resources about credit together

• Set clear expectations about the process

Days 15-21: Implementation

• Add your child as an authorized user

• Decide on physical card access rules

• Set up credit monitoring for your child

Days 22-30: Monitoring and Reinforcement

• Check to ensure the account appears on your child's credit report

• Review the basics of credit score factors

• Establish regular check-ins to discuss credit progress

The Bottom Line: Early Credit Building Is a Gift That Keeps Giving

Helping children establish credit responsibly is increasingly becoming an essential part of parenting in the modern financial landscape. By starting early with the authorized user strategy and progressing to more independent credit management, parents can give their children a significant advantage.

Remember that the goal isn't just a good credit score—it's developing financial responsibility that will serve them throughout adulthood. The best credit-building strategies always pair practical tools with consistent education and guidance.

With patience and proper planning, parents can help children enter adulthood with both established credit history and the knowledge to manage it wisely—a combination that provides opportunities and financial advantages for decades to come.